Euro – The rate is fixed. What next?

By Demetris Vakis, Partner, KPMG Advisory Services

 

At last! The irrevocable exchange rate between the Cyprus Pound and the Euro has been fixed for the changeover. One Euro equals exactly 0,585274 Pounds! So, what next?

Of course, the most evident of the requirements of the relevant law is the need for dual display of prices of goods and services as from 1 September 2007, which is mandatory until 30 September 2008. However, perhaps the most important decision at this stage relates to the pricing strategy one will adopt for the coming 15 months.

The issue of pricing is more important than it seems at first glance. It is true that each business has the freedom to adjust the prices of its products/services as and when required, with the only requirement that these are properly converted and displayed both in Pounds and in Euro. However, one needs to ensure that price increases, and in particular, potential minor adjustments to arrive at practical “rounded” amounts, are both reasonable and justifiable. The law provides for mechanisms for monitoring such activity. One of the major instruments is the Euro observatory. These are bodies that will be established in each district, comprising of representatives from ministries, consumers’ associations and unions, amongst others. Their main role will be to accept and investigate complaints concerning issues such as non-application of the law, abnormal price increases and improper conversion of prices. The euro-observatories have the authority to initiate an investigation without having received a complaint and they can apply fines and publicise law-breakers.

The government has also launched a scheme which seeks to convince businesses to voluntarily commit to maintaining fair prices during the critical period before and after the changeover. These businesses agree to abide by a code and are issued with a logo which can be used on marketing material and can be displayed at their premises.

All these lead to one conclusion: the government will be very sensitive to abnormal price increases. Therefore, businesses need to consider their pricing strategy concerning the coming period and should finalise decisions before 1 September 2007.

 

(This article is a synopsis of a presentation by Demetris Vakis made on the Euro to the Rotary Club of Nicosia-Ledra)